Karnataka HC Quashes Reopening Of Previously Scrutinised ₹2.24-Crore Section 54F Claim, Applying Revenue’s AY 2015-16 Concession

The assessee filed his return for AY 2015–16, declaring long-term capital gains and claiming an exemption under Section 54F of the Income Tax Act, 1961.

In the original scrutiny assessment, the Assessing Officer disallowed part of the exemption because the assessee had not provided sufficient particulars concerning construction of a residential house.

In 2022, the Assessing Officer issued an order under Section 148A(d) and a notice under Section 148, seeking to reassess the same claim on the ground that particulars concerning acquisition of residential property were inadequate.

The Single Judge quashed the reassessment proceedings.

The Revenue appealed, contending that the notice was timely because the six-year limitation period expired on 31 March 2022, and that the Supreme Court’s decision in Union of India v. Rajeev Bansal did not apply.

Section 149 of the Income Tax Act governs the time limits for issuing reassessment notices, while Section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extends specified statutory time limits in accordance with its terms.

In Union of India v. Rajeev Bansal, [2024] 469 ITR 46 (SC), the Revenue conceded that notices issued on or after 1 April 2021 for AY 2015–16 would have to be dropped because they did not fall within the limitation period as extended under TOLA.

Union of India v. Ashish Agarwal, [2022] 444 ITR 1 (SC), treated certain notices issued under the former reassessment regime as notices under Section 148(b) of the amended Act.

The court also applied the principle that reassessment cannot be used to review an earlier assessment by changing the Assessing Officer’s opinion on an issue already examined.

The High Court rejected the Revenue’s limitation argument because the concession recorded in Rajeev Bansal covered notices issued on or after 1 April 2021 for AY 2015–16, and the notice in this case was issued in 2022.

It further found that the Section 54F claim had been examined in the original assessment and that the reassessment relied on the same alleged deficiency in particulars.

The proposed reassessment therefore sought to revisit the earlier assessment on the same ground, amounting to an impermissible change of opinion.

It dismissed the Revenue’s appeal and upheld the quashing of the order under Section 148A(d), the notice under Section 148, and consequential notices for AY 2015–16.

The 85-day delay in filing the appeal was condoned.